22 Apr 2024
The current commercial real estate financing landscape, including the self-storage lending landscape, as it applies to lending, is finally warming up. It does, however, require an understanding of lender expectations and market dynamics. Here's a breakdown of some key points and considerations that I’ve been able to gather over the last couple of months:
Market Realities and Lender Caution: Higher interest rates and adjusted asset valuations have led to a more cautious approach from lenders, particularly traditional banks. While credit is available, lenders are emphasizing thorough due diligence and risk mitigation in the realm of self-storage lending.
Underwriting Considerations: Lenders are prioritizing market comparables, looking at asking rates that are skewed by lower introductory rates that will be raised over time through ECRIs; and, also adjusting debt service coverage ratios (DSCR) based on increasing Treasury yields. These factors can impact the loan amount and terms offered in the sphere of self-storage lending.
Owner Preparedness: Owners seeking financing should proactively engage with capital experts to understand due diligence requirements, identify potential risks, and develop comprehensive business plans supported by relevant data specific to the property's market. Banks are looking for Owners who look into ways to drive occupancy through B2B rentals and train their facility managers to reach out to local businesses to fill up their facilities with long term stays, a crucial aspect in the context of self-storage lending.
Mitigating Execution Risk: Work with capital experts - specifically ones who specialize in Self Storage - who have a deep understanding of market trends and lender preferences in the realm of self-storage lending. Building strong relationships with a diverse range of capital providers will increase access to competitive financing options, allowing you to have as many options as possible. Fight to get the best rates possible!
Remaining Informed: Staying abreast of key underwriting trends and market dynamics is crucial for owners to successfully achieve their business objectives in the current environment, particularly in the domain of self-storage lending. Get as much information prior to putting together your Pro-Forma package.
